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Dealers of the year on ‘98 and ‘99 Back  
The Irish Association of Corporate treasurers handed out the laurels in December to those treasury bankers who served them best over the course of 1998. Finance asked the
winners to offer their thoughts on 1998 and the year ahead.
Brian kelleher is the first dealer from AIB Group Treasury to win the Corporate Dealer of the Year. He has been in treasury since 1987 and his interests include golf at Luttrellstown Castle and at his home town course in Tralee. His best call for 1999 is for the Kerry team to dethrone Galway in the All Ireland semi-final and to see off the Dubs in the final. ‘In late 1996, we forecast that IEP/DEM rate would settle/fix at about 2.5 for entry to the euro. This in fact is now 2.4833, the revaluation of 3 per cent in the IEP was announced in March 1998. Our forecasts for Irish interest rates short and long term was for substantial falls throughout the year. These occurred but the market was slightly taken aback by further falls in interest rates across Europe.

Looking to 1999, after a possible uncertain start, we expect the euro to steadily appreciate throughout the second half of the year. The euro should benefit from relative interest rate differentials between it and both the US dollar and sterling and also from portfolio flows. In terms of the euro interest rates curve we would expect the slope of the curve to become more positive and shift upwards, that is higher short term and long term interest rates.’

John Moclair, BNP,

Winner of the customer services category in the 1998 Irish Association of Corporate Treasurers Awards.

John is head of sales at BNP. Prior to joining BNP in 1995, he worked for 7 years as a consultant with FTI Finance, working closely with FTI’s clients to provide appropriate solutions in the treasury and corporate finance areas.
His treasury career started in ESB Group Treasury in 1987, where he was involved in developing market views and strategies to assist in the management of ESB’s currency and debt portfolios. He is a member of the IACT, the UK ACT and is a qualified management accountant (CIMA).
‘Looking back at 1998, the main feature has been the volatility seen in the bond, stock and credit markets. With hindsight, this turmoil can be traced back to problems that came to the fore in 1997 in Asia, Russia and Latin America. Indeed, many commentators had predicted that 1998 would be volatile, but, ironically, the supposed source of trouble - the run in to EMU - has so far gone off without a hitch. The only blip on the road to EMU has been the limited IEP revaluation.

Although EMU may not have resulted in any market earthquakes, its effects have and will continue to be felt among the banks that provide treasury services. Clearly FX activity will decline and this poses a challenge to banks to innovate in order to survive.

Our experienced team, combined with the fact that BNP globally will be one of the major euro players, should allow us to provide our clients with a top class service in all the product areas in the new euro zone, especially in derivatives and fixed income.

As for the markets next year, the EMU process was supposed to be littered with pitfalls but this did not come to pass. Confidence in EMU is now high with little trouble expected. Could this confidence be as equally misplaced as last year’s pessimism?

Mick Purcell, AIB Corporate & Commercial Treasury
Corporate dealer of the year,
2nd runner-up

Mick Purcell, AIB, is pleased with the results of the awards, and says it reflects the amount of time and energy which AIB has been putting into the euro and the bank’s payments capacity.
‘The bank has spent a lot of time working on our own IT systems and platforms so that we are in a position to better serve our clients,’ he says.

‘We are upbeat about the arrival of the euro and see it as a great opportunity to grow our business and in fact our team has been growing in advance of the euro, to ensure the best service,’ he says.

Mick worked in London as a money market trader, returning to Ireland in 1987. He has over 17 years experience in foreign exchange and interest rate trading.

Des Leavy, Ulster Bank Markets - Group Treasury
Joint Winner - Money Markets
Category 1998

Des Leavy joined the Ulster Bank in 1987 having previously worked for James Allen (Ireland). Since then he has worked in corporate treasury specialising in interest rate products. He is married to Paula and they have a young daughter. He is a keen golfer (‘keen more than skilled’ he says) and is a member of Castle Golf Club in Rathfarnham. ‘Over the past year the Central Bank of Ireland kept short-term interest rates at artificially high levels for far longer than most people expected. This was primarily an attempt to control the rate of growth in private sector credit. However with expectations for rates to fall sharply by the beginning of 1999, the relatively high level of short-term rates had a limited impact on people’s decision to borrow funds and the rate of credit growth remained close to 25 per cent for most of the year. In the final few months of 1999 the rate of inflation trended downwards as price pressures eased in the economy due in large to favourable movements in the GBP exchange rate and retail rate cuts as wholesale rates converged with core European rates.

The recent co-ordinated series of rate cuts in December bringing their repo rates to 3.00 per cent (with the exception of Italy who cut their repo rate to 3.50 per cent) effectively means that interest rate convergence among the ‘euro’ economies has now taken place. Some small differences in short term rates remain due mainly to different liquidity conditions in each country’s money market. These differences have disappeared as the ECB takes over from national central banks and with the the single currency allowing efficient arbitrage of interest rate differences.

1999: The removal of exchange rate uncertainty within the euro block will simplify the management of trade related foreign exchange exposures but this may prove to be somewhat of a double edged sword. More transparent pricing due to the single currency (and fixed exchange rates among legacy currencies) is likely to encourage more competition for Irish companies in the home market. For the authorities the loss of control over our interest rate policy removes an important tool used to manage economic growth and the current low level of interest rates in the euro zone will provide a further unnecessary stimulus to the Irish economy which is already growing very strongly.

One of the main positive impacts of the euro for corporate treasurers will be access to a full range of hedging tools that have either been unavailable in the Irish market or have been too expensive in the past. These instruments will offer a viable alternative to spot and outright forward FX, which can prove to be too inflexible, they will also offer depositors alternative strategies when investing funds to potentially increase their return.

Over the coming year my advice to corporate treasurers would be to ensure they are fully up to speed on all the hedging instruments available to allow them to efficiently hedge their exposures. Hedging against adverse movements in the value of the euro and in interest rates will help them to maintain a competitive advantage over less alert competition.

KAREN HANLON, Irish Intercontinental Bank

Karen Hanlon has been with IIB for 6 years. She plays a key role on a very busy corporate deposit desk, speaking to most Irish blue chip and medium sized companies. IIB’s business in this area has been significantly expanded to include IFSC and UK corporate counterparties. ‘Best calls of 1998: Towards the end of last year a couple of directional calls suggested themselves. Market misgivings about the nature of EMU and the unusually high Irish pound during the second half of 1997 meant that as this year began there seemed to be a risk that the Irish currency would weaken considerably. Our call for a sharp fall early in 1998 and even a very modest revaluation didn’t prevent this being a period of pronounced Irish pound weakness.

For much of 1998, the UK interest rate market has been quite volatile. When official rates were raised in June, this looked like a hike too far. IIB’s view was that the British economy would look far weaker later in the year and that would prompt a significant change in market sentiment on interest rates. The weakening in activity and the drop in rates that duly arrived was in truth more aggressive than could have been expected. However, it did have the impact on sterling that we anticipated. The UK currency spent the second half of the year on the slide.

Call for 1999: Given the continuing deterioration in the economic climate, a euro interest rate cut would not come as a surprise in either the first or second quarters of next year. For this reason locking in yields for between 3 and 6 months is an option worth considering. During the second half of 1999 as markets begin to contemplate the interest rate implications of an eventual recovery in the world economy, we may well see a steepening of the yield curve. Moreover, as in 1987 in the wake of the stock market crash markets may have to grapple with the possibility that in responding to current financial turmoil, central banks might have cut interest rates too far. As a result markets may come to expect an exaggerated rebound in official rates. Thus we may see a substantial steepening of our yield curve in late 1999 or during 2000. The key element in this environment is to beaware of the turning point in the interest rate cycle.

Traders and corporates may well be pretty much in the dark regarding the direction of the euro in the early months of 1999 until the attitude of the ECB becomes clear and the markets decides what to make of the new currency. One must remember that the euro has no relevant precedent. Overnight it will become a global ‘super’ currency. This is one reason why there could be a lot of volatility in foreign exchange markets. Another is the fact that policy makers will be more concerned with domestic rather than FX issues, the UK will be concentrating on the risk of recession, while core Europe will be concentrating on the new economy that is Euroland. Add to this the likelihood that investment funds could undergo significant shifts and we can envisage sharp moves in currency markets. This suggests the threat of an exaggerated drop in sterling
in early 1999.’

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